CULLEN/FROST BANKERS, INC. [CFR] Filings

10-Q 1 cfr-20240630.htm 10-Q cfr-20240630

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: June 30, 2024

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________________ to ________________

Commission file number: 001-13221

Cullen/Frost Bankers, Inc.

(Exact name of registrant as specified in its charter)

Texas

74-1751768

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

111 W. Houston Street,

San Antonio,

Texas

78205

(Address of principal executive offices)

(Zip code)


	(210)	220-4011
(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on
which registered

Common Stock, $.01 Par Value

CFR

New York Stock Exchange

Depositary Shares, each representing a 1/40th interest in a share of 4.450% Non-Cumulative Perpetual Preferred Stock, Series B

CFR.PrB

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 18, 2024, there were 64,020,978 shares of the registrant’s Common Stock, $.01 par value, outstanding.

Cullen/Frost Bankers, Inc.

Quarterly Report on Form 10-Q

June 30, 2024

Table of Contents


		Page
Part I - Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income (Loss)	5
	Consolidated Statements of Changes in Shareholders’ Equity	6
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61
Item 4.	Controls and Procedures	61

Part II - Other Information
Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	62
Item 2.	Unregistered Sales of Equity Securities , Use of Proceeds, and Issuer Purchases of Equity Securities	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	63

Signatures		64

Table of Contents

Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Cullen/Frost Bankers, Inc.

Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)


	June 30, 2024		December 31, 2023
Assets:
Cash and due from banks	$	612,648	$	617,569
Interest-bearing deposits	6,445,461		7,985,057
Federal funds sold	2,025		—
Resell agreements	84,650		84,650
Total cash and cash equivalents	7,144,784		8,687,276
Securities held to maturity, net of allowance for credit losses of $310 at both June 30, 2024 and December 31, 2023	3,586,116		3,619,428
Securities available for sale, at estimated fair value	15,197,638		16,578,371
Trading account securities	32,186		31,717
Loans, net of unearned discounts	19,995,756		18,824,251
Less: Allowance for credit losses on loans	(256,307)		(245,996)
Net loans	19,739,449		18,578,255
Premises and equipment, net	1,221,043		1,190,033
Accrued interest receivable and other assets	1,921,477		2,159,958
Total assets	$	48,842,693	$	50,845,038

Liabilities:
Deposits:
Non-interest-bearing demand deposits	$	13,484,977	$	14,926,094
Interest-bearing deposits	26,833,163		26,994,474
Total deposits	40,318,140		41,920,568
Federal funds purchased	35,925		14,200
Repurchase agreements	3,762,942		4,127,188
Junior subordinated deferrable interest debentures, net of unamortized issuance costs	123,155		123,127
Subordinated notes, net of unamortized issuance costs	99,569		99,491
Accrued interest payable and other liabilities	837,157		844,017
Total liabilities	45,176,888		47,128,591

Shareholders’ Equity:
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 150,000 Series B shares ($1,000 liquidation preference) issued at June 30, 2024 and December 31, 2023	145,452		145,452
Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,404,582 shares issued at both June 30, 2024 and December 31, 2023	644		644
Additional paid-in capital	1,064,070		1,055,809
Retained earnings	3,810,008		3,657,688
Accumulated other comprehensive income (loss), net of tax	(1,309,344)		(1,119,219)
Treasury stock, at cost; 415,954 shares at June 30, 2024 and 219,295 at December 31, 2023	(45,025)		(23,927)
Total shareholders’ equity	3,665,805		3,716,447
Total liabilities and shareholders’ equity	$	48,842,693	$	50,845,038

See accompanying Notes to Consolidated Financial Statements.

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Cullen/Frost Bankers, Inc.

Consolidated Statements of Income

(Dollars in thousands, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Interest income:
Loans, including fees	$	343,776	$	290,552	$	674,316	$	560,267
Securities:
Taxable	99,012		101,960		197,074		199,735
Tax-exempt	54,579		60,637		109,838		127,271
Interest-bearing deposits	97,639		87,748		198,000		186,993
Federal funds sold	80		305		160		1,063
Resell agreements	1,199		1,126		2,397		2,194
Total interest income	596,285		542,328		1,181,785		1,077,523
Interest expense:
Deposits	159,260		120,266		314,894		218,255
Federal funds purchased	547		412		991		995
Repurchase agreements	36,302		33,114		72,250		66,765
Junior subordinated deferrable interest debentures	2,300		2,106		4,559		4,094
Subordinated notes	1,164		1,164		2,328		2,328
Total interest expense	199,573		157,062		395,022		292,437
Net interest income	396,712		385,266		786,763		785,086
Credit loss expense	15,787		9,901		29,437		19,005
Net interest income after credit loss expense	380,925		375,365		757,326		766,081
Non-interest income:
Trust and investment management fees	41,404		39,392		80,489		75,536
Service charges on deposit accounts	26,114		23,487		50,909		45,366
Insurance commissions and fees	13,919		12,940		32,215		31,892
Interchange and card transaction fees	5,351		5,250		9,825		10,139
Other charges, commissions, and fees	13,020		12,090		25,080		23,794
Net gain (loss) on securities transactions	—		33		—		54
Other	11,382		10,336		24,049		22,012
Total non-interest income	111,190		103,528		222,567		208,793
Non-interest expense:
Salaries and wages	151,237		133,195		299,237		263,540
Employee benefits	28,802		26,792		64,772		60,714
Net occupancy	32,374		31,714		64,152		62,063
Technology, furniture, and equipment	35,951		33,043		70,946		65,524
Deposit insurance	8,383		6,202		23,107		12,447
Other	60,217		54,096		120,967		105,896
Total non-interest expense	316,964		285,042		643,181		570,184
Income before income taxes	175,151		193,851		336,712		404,690
Income taxes	29,652		31,733		55,523		64,919
Net income	145,499		162,118		281,189		339,771
Preferred stock dividends	1,669		1,669		3,338		3,338
Net income available to common shareholders	$	143,830	$	160,449	$	277,851	$	336,433

Earnings per common share:
Basic	$	2.21	$	2.47	$	4.27	$	5.18
Diluted	2.21		2.47		4.27		5.17

See accompanying Notes to Consolidated Financial Statements.

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Cullen/Frost Bankers, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(Dollars in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net income	$	145,499	$	162,118	$	281,189	$	339,771
Other comprehensive income (loss), before tax:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	(42,111)		(206,863)		(241,186)		53,406
Change in net unrealized gain on securities transferred to held to maturity	(157)		(162)		(316)		(322)
Reclassification adjustment for net (gains) losses included in net income	—		(33)		—		(54)
Total securities available for sale and transferred securities	(42,268)		(207,058)		(241,502)		53,030
Defined-benefit post-retirement benefit plans:

Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)	419		870		837		1,740
Total defined-benefit post-retirement benefit plans	419		870		837		1,740
Other comprehensive income (loss), before tax	(41,849)		(206,188)		(240,665)		54,770
Deferred tax expense (benefit)	(8,788)		(43,299)		(50,540)		11,503
Other comprehensive income (loss), net of tax	(33,061)		(162,889)		(190,125)		43,267
Comprehensive income (loss)	$	112,438	$	(771)	$	91,064	$	383,038

See accompanying Notes to Consolidated Financial Statements.

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Cullen/Frost Bankers, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

(Dollars in thousands, except per share amounts)


	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Tax		Treasury Stock		Total
Three months ended:
June 30, 2024
Balance at beginning of period	$	145,452	$	644	$	1,059,547	$	3,726,559	$	(1,276,283)	$	(17,739)	$	3,638,180
Net income	—		—		—		145,499		—		—		145,499
Other comprehensive income (loss), net of tax	—		—		—		—		(33,061)		—		(33,061)
Stock option exercises/stock unit conversions (38,452 shares)	—		—		—		(573)		—		2,867		2,294
Stock-based compensation expense recognized in earnings	—		—		4,523		—		—		—		4,523
Purchase of treasury stock (301,094 shares)	—		—		—		—		—		(30,153)		(30,153)

Cash dividends – Series B preferred stock (approximately $11.13 per share which is equivalent to approximately $0.28 per depositary share)	—		—		—		(1,669)		—		—		(1,669)
Cash dividends – common stock ($0.92 per share)	—		—		—		(59,808)		—		—		(59,808)
Balance at end of period	$	145,452	$	644	$	1,064,070	$	3,810,008	$	(1,309,344)	$	(45,025)	$	3,665,805

June 30, 2023
Balance at beginning of period	$	145,452	$	644	$	1,035,961	$	3,428,991	$	(1,142,138)	$	(1,109)	$	3,467,801
Net income	—		—		—		162,118		—		—		162,118
Other comprehensive income (loss), net of tax	—		—		—		—		(162,889)		—		(162,889)
Stock option exercises/stock unit conversions (13,626 shares)	—		—		—		(491)		—		1,437		946
Stock-based compensation expense recognized in earnings	—		—		4,793		—		—		—		4,793
Purchase of treasury stock (289,149 shares)	—		—		—		—		—		(27,951)		(27,951)

Cash dividends – Series B preferred stock (approximately $11.13 per share which is equivalent to approximately $0.28 per depositary share)	—		—		—		(1,669)		—		—		(1,669)
Cash dividends – common stock ($0.87 per share)	—		—		—		(56,407)		—		—		(56,407)
Balance at end of period	$	145,452	$	644	$	1,040,754	$	3,532,542	$	(1,305,027)	$	(27,623)	$	3,386,742

See accompanying Notes to Consolidated Financial Statements

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Cullen/Frost Bankers, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

(Dollars in thousands, except per share amounts)


	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Tax		Treasury Stock		Total
Six months ended:
June 30, 2024
Balance at beginning of period	$	145,452	$	644	$	1,055,809	$	3,657,688	$	(1,119,219)	$	(23,927)	$	3,716,447
Net income	—		—		—		281,189		—		—		281,189
Other comprehensive income (loss), net of tax	—		—		—		—		(190,125)		—		(190,125)
Stock option exercises/stock unit conversions (122,628 shares)	—		—		—		(5,919)		—		11,128		5,209
Stock-based compensation expense recognized in earnings	—		—		8,261		—		—		—		8,261
Purchase of treasury stock (319,287 shares)	—		—		—		—		—		(32,226)		(32,226)

Cash dividends – Series B preferred stock (approximately $22.25 per share which is equivalent to approximately $0.56 per depositary share)	—		—		—		(3,338)		—		—		(3,338)
Cash dividends – common stock ($1.84 per share)	—		—		—		(119,612)		—		—		(119,612)
Balance at end of period	$	145,452	$	644	$	1,064,070	$	3,810,008	$	(1,309,344)	$	(45,025)	$	3,665,805

June 30, 2023
Balance at beginning of period	$	145,452	$	643	$	1,029,756	$	3,309,671	$	(1,348,294)	$	—	$	3,137,228
Net income	—		—		—		339,771		—		—		339,771
Other comprehensive income (loss), net of tax	—		—		—		—		43,267		—		43,267
Stock option exercises/stock unit conversions (64,013 shares)	—		1		1,463		(519)		—		1,501		2,446
Stock-based compensation expense recognized in earnings	—		—		9,535		—		—		—		9,535
Purchase of treasury stock (298,332 shares)	—		—		—		—		—		(29,124)		(29,124)

Cash dividends – Series B preferred stock (approximately $22.25 per share which is equivalent to approximately $0.56 per depositary share)	—		—		—		(3,338)		—		—		(3,338)
Cash dividends – common stock ($1.74 per share)	—		—		—		(113,043)		—		—		(113,043)
Balance at end of period	$	145,452	$	644	$	1,040,754	$	3,532,542	$	(1,305,027)	$	(27,623)	$	3,386,742

See accompanying Notes to Consolidated Financial Statements

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Cullen/Frost Bankers, Inc.

Consolidated Statements of Cash Flows

(Dollars in thousands)


	Six Months Ended June 30,
	2024		2023
Operating Activities:
Net income	$	281,189	$	339,771
Adjustments to reconcile net income to net cash from operating activities:
Credit loss expense	29,437		19,005
Deferred tax expense (benefit)	(7,713)		(2,489)
Accretion of loan discounts	(10,245)		(9,265)
Securities premium amortization (discount accretion), net	24,786		36,919
Net (gain) loss on securities transactions	—		(54)
Depreciation and amortization	40,695		37,076
Net (gain) loss on sale/write-down of assets/foreclosed assets	110		(283)
Stock-based compensation	8,261		9,535
Net tax benefit from stock-based compensation	621		469
Earnings on life insurance policies	(1,840)		(1,387)
Net change in:
Trading account securities	(175)		335
Lease right-of-use assets	12,473		11,193
Accrued interest receivable and other assets	287,609		59,051
Accrued interest payable and other liabilities	(47,195)		(176,718)
Net cash from operating activities	618,013		323,158
Investing Activities:
Securities held to maturity:
Purchases	—		(1,141,443)
Maturities, calls and principal repayments	31,325		92,547
Securities available for sale:
Purchases	(3,757,122)		(7,607,014)
Sales	—		1,543,355
Maturities, calls and principal repayments	4,902,271		7,077,003
Proceeds from sale of loans	1,191		2,215
Net change in loans	(1,179,526)		(602,902)
Benefits received on life insurance policies	1,063		1,000
Proceeds from sales of premises and equipment	9		1,179
Purchases of premises and equipment	(64,800)		(85,156)
Proceeds from sales of repossessed properties	—		583
Net cash from investing activities	(65,589)		(718,633)
Financing Activities:
Net change in deposits	(1,602,428)		(3,253,366)
Net change in short-term borrowings	(342,521)		(1,128,896)
Proceeds from stock option exercises	5,209		2,446
Purchase of treasury stock	(32,226)		(29,124)
Cash dividends paid on preferred stock	(3,338)		(3,338)
Cash dividends paid on common stock	(119,612)		(113,043)
Net cash from financing activities	(2,094,916)		(4,525,321)
Net change in cash and cash equivalents	(1,542,492)		(4,920,796)
Cash and cash equivalents at beginning of period	8,687,276		12,028,132
Cash and cash equivalents at end of period	$	7,144,784	$	7,107,336

See accompanying Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements

(Table amounts in thousands, except for share and per share amounts)

Note 1 - Significant Accounting Policies

Nature of Operations. Cullen/Frost Bankers, Inc. (“Cullen/Frost”) is a financial holding company and a bank holding company headquartered in San Antonio, Texas that provides, through its subsidiaries, a broad array of products and services throughout numerous Texas markets. The terms “Cullen/Frost,” “the Corporation,” “we,” “us” and “our” mean Cullen/Frost Bankers, Inc., and its subsidiaries, when appropriate. In addition to general commercial and consumer banking, other products and services offered include trust and investment management, insurance, brokerage, mutual funds, leasing, treasury management, capital markets advisory and item processing.

Basis of Presentation. The consolidated financial statements in this Quarterly Report on Form 10-Q include the accounts of Cullen/Frost and all other entities in which Cullen/Frost has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and financial reporting policies we follow conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry.

The consolidated financial statements in this Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of our financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2023, included in our Annual Report on Form 10-K filed with the SEC on February 6, 2024 (the “2023 Form 10-K”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The allowance for loan losses and the fair values of financial instruments and the status of contingencies are particularly subject to change.

Cash Flow Reporting. Additional cash flow information was as follows:


	Six Months Ended June 30,
	2024		2023
Cash paid for interest	$	389,432	$	270,358
Cash paid for income taxes	62,000		66,500
Significant non-cash transactions:
Unsettled securities transactions	29,011		10,988


Right-of-use lease assets obtained in exchange for lessee operating lease liabilities	9,218		8,914

Accounting Changes, Reclassifications and Restatements. Certain items in prior financial statements have been reclassified to conform to the current presentation.

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Note 2 - Securities

Securities - Held to Maturity. A summary of the amortized cost, fair value and allowance for credit losses related to securities held to maturity as of June 30, 2024 and December 31, 2023 is presented below.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Allowance for Credit Losses		Net Carrying Amount
June 30, 2024

Residential mortgage-backed securities	$	1,225,779	$	—	$	74,853	$	1,150,926	$	—	$	1,225,779
States and political subdivisions	2,359,147		17,319		111,929		2,264,537		(310)		2,358,837
Other	1,500		—		26		1,474		—		1,500
Total	$	3,586,426	$	17,319	$	186,808	$	3,416,937	$	(310)	$	3,586,116
December 31, 2023

Residential mortgage-backed securities	$	1,250,431	$	76	$	54,175	$	1,196,332	$	—	$	1,250,431
States and political subdivisions	2,367,807		42,990		76,540		2,334,257		(310)		2,367,497
Other	1,500		—		45		1,455		—		1,500
Total	$	3,619,738	$	43,066	$	130,760	$	3,532,044	$	(310)	$	3,619,428

All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. The carrying value of held-to-maturity securities pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law was $1.3 billion and $1.0 billion at June 30, 2024 and December 31, 2023, respectively. Accrued interest receivable on held-to-maturity securities totaled $38.2 million and $40.9 million at June 30, 2024 and December 31, 2023, respectively and is included in accrued interest receivable and other assets in the accompanying consolidated balance sheets.

From time to time, we have reclassified certain securities from available for sale to held to maturity. The net unamortized, unrealized gain remaining on transferred securities included in accumulated other comprehensive income in the accompanying balance sheet totaled $835 thousand ($660 thousand, net of tax) at June 30, 2024 and $1.2 million ($909 thousand, net of tax) at December 31, 2023. This amount will be amortized out of accumulated other comprehensive income over the remaining life of the underlying securities as an adjustment of the yield on those securities.

The following table summarizes Moody's and/or Standard & Poor's bond ratings for our portfolio of held-to-maturity securities issued by States and political subdivisions and other securities as of June 30, 2024 and December 31, 2023:


	States and Political Subdivisions
	Not Guaranteed or Pre-Refunded		Guaranteed by the Texas PSF		Guaranteed by Third Party		Pre-Refunded		Total		Other Securities
June 30, 2024
Aaa/AAA	$	301,518	$	1,538,227	$	13,645	$	1,090	$	1,854,480	$	—
Aa/AA	498,557		—		6,110		—		504,667		—

Not rated	—		—		—		—		—		1,500
Total	$	800,075	$	1,538,227	$	19,755	$	1,090	$	2,359,147	$	1,500
December 31, 2023
Aaa/AAA	$	301,721	$	1,541,913	$	13,651	$	1,401	$	1,858,686	$	—
Aa/AA	503,016		—		6,105		—		509,121		—

Not rated	—		—		—		—		—		1,500
Total	$	804,737	$	1,541,913	$	19,756	$	1,401	$	2,367,807	$	1,500

Table of Contents

The following table details activity in the allowance for credit losses on held-to-maturity securities during the three and six months ended June 30, 2024 and 2023.


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Beginning balance	$	310	$	262	$	310	$	158
Credit loss expense (benefit)	—		5		—		109
Ending balance	$	310	$	267	$	310	$	267

Securities - Available for Sale. A summary of the amortized cost, fair value and allowance for credit losses related to securities available for sale as of June 30, 2024 and December 31, 2023 is presented below.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
June 30, 2024
U.S. Treasury	$	4,184,938	$	—	$	302,607	$	—	$	3,882,331

Residential mortgage-backed securities	7,567,795		2,840		1,033,208		—		6,537,427
States and political subdivisions	5,030,087		2,316

CULLEN/FROST BANKERS, INC. [CFR] Filings

CULLEN/FROST BANKERS, INC. [CFR-PB] Filings